Could Become a Mere Wingman

The shares of Buffalo Wild Wings (BWLD) have been on a wild ride. Year to date, the stock is up 44%, and it shows no signs of slowing down any time soon. Obviously momentum investors are really into wings, beer and sports!

Members of the analyst community have been falling all over themselves to slap higher price targets on the stock. Right now, 11 of the 21 analysts who follow Buffalo Wild Wings have a "buy" or "strong buy" rating on the stock, with price targets in the $117-to-$120 range.

The company just reported a strong second quarter. Revenue increased 27.8% to $305 million, and earnings grew 41.4%. The company added 23% more locations, and same-store sales for company-owned locations grew 3.8%. (Franchised same store sales increased 4.1%.)

In addition to the strong financial performance, Buffalo Wild Wings added a slew of new products, such as sauces and dips; new menu items, such as bratwursts; and new merchandise to the restaurants.

Investors are excited for the start of the football season, which is a seasonally strong part of the year for the company. September is expected to have an additional week of football vs. last year.

Restaurant giant McDonald's (MCD) is expected to launch its "Mighty Wings" promotion Sept. 9. The promotion will run through November and will be sold in three-, five- and 10-packs, with prices starting at $2.99. The promotion is expected to hit 14,000 McDonald's restaurants.

When investors heard about the promotion, they freaked out. McDonald's hasn't promoted in-bone chicken wings in a decade.

Analysts were concerned that prices for the offering would skyrocket, thus crimping Buffalo Wild Wings profits. But in-bone wing prices have been falling since February, and they've been stable since June. In previous years, Buffalo Wild Wings' profit margins have taken a serious beating as wing prices would take flight at the start of football season.

It appears chicken producers have been stocking up on wings just in case hungry football fans demand more. Right now, supplies of refrigerated in-bone chicken wings are at a near-record high.

After management assured investors that the McDonald's promotion would have a limited effect on Buffalo Wild Wings, the stock resumed its ride.

But I'm not so sure everything will work out so nicely. The stock is trading at 24x next year's earnings estimates of $4.45 per share, which is pretty pricey for a casual dining chain. Maybe analysts are right that wing prices won't soar, but what is to prevent consumers from shifting their demand from Buffalo Wild Wings to McDonald's? Why not buy a few 10-piece buckets and stay home and watch the game? It would certainly be cheaper, and it's clear U.S. consumers are broke.

According to the Knapp-Track Index, sales at casual-dining establishments fell 3.5% in July following a 2% decline in June. Before this, the index hadn't seen two consecutively monthly declines in almost three years.

Moreover, nothing says chicken-wing owners have to empty the fridge when the first wave of hungry fans comes knocking. What's to prevent chicken-wing producers from holding back and letting prices rise into the Super Bowl? I know the company says it's hedged against rising prices, and that nothing short of a world war will ruin its margins. But why take the chance, especially at these valuation levels?

Personally, I would steer clear of Buffalo Wild Wings until we know the true fallout of the McDonald's Mighty Wing promotion. Such a huge shift in pricing or demand could leave investors with a serious case of indigestion.

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